“Going into the process unprepared without an FD that’s all over the numbers means you’ll fail. If you’re extremely lucky your value might shine through, but you can’t build plans on luck.”
“There’s a finite amount of private equity firms that find this space attractive and most of them have existing recruitment businesses under their banner. Any additional effort they have to take to untangle your figures, systems, and processes for inspection will end your journey at its roots.”
“Make sure you prepare everything you can in advance and that you avoid shooting yourself in the foot by trying to mask underlying problems like overly complicated group structures, favourable tax maneuvering, or compliance gaps.”
It has to be a fast-growing business with a clear vision, good market position, that shows signs of being structurally saleable in due course.
Before you enter into an investment conversation have:
- A future vision
- A financial plan
- Clean and tidy management information
- An accurate forecast
- Historic benchmarks
- Address or mitigate any problems
- A clear way of displaying the above
Avoid building confidence from an echo chamber
“A lot of recruitment businesses are profitable, solid businesses, but the reality is that nobody is going to buy them. As SMEs, they won’t be able to IPO or entice a trade buyer and there’s very little that separates them as special in a busy market.”
If you’re seriously considering scaling for sale then you should chart what your long-term vision is to make the business uniquely purchasable.
Frank Group and Phaidon are two examples of great deals where both had developed excellent visions and historic track records. Buyers wanted to be involved in their journey and they could see who would invest or buy them later on as well. That long term vision and attractiveness is key.
“I’ve not seen it in other industries where owners draw false-confidence over the value of their company, and what makes it attractive, from speaking in a closed setting with contemporaries that haven’t successfully been through the journey themselves.”
“I’d caution owners paying heed to friendly advice and suggest involving corporate advisors, lawyers, and NEDs that know the journey and can lay the groundwork and direction early.”
“I’ve found that owners are great at running profitable businesses, but might not know from a satellite view or outside perspective what makes their business attractive. If I landed in a business tomorrow, my first action would be to sit down with the senior team and understand the good, the bad, and the ugly of the business and to lay all the skeletons on the table.”
“I then want to understand what makes them special and why an investor or buyer would get excited about them?”
Admitting when the business outgrows you
Businesses that receive investment and fail, tend to do so because of management. Every growth journey reaches a stage where the expertise needed extends past the founders or current leadership and the decisions at this crossroad are critical.
“Whether it’s adding a contract arm, a specific niche, territory, or international expansion, you need an experienced bench at the helm and early leadership may struggle in accepting that’s not them.”
Different growth stages will demand different skill sets at the most senior levels and that travels right through to the CEO.
“It’s sometimes the case of knowing when and how to layer in the next layer of expertise to keep the boat rowing at speed and founders sometimes accepting that the business is bigger than them.”
About James Barbour-Smith:
Experienced Chairman, NED, board advisor and mentor. His 20+ year career in private equity included preparing and taking over 50 companies through to sale. In recruitment, he led the IPO of SThree in 2005 and returned in 2014 to Chair their Global Energy division and help on compliance, innovation and M&A. He was on the board of Swift Worldwide Resources and oversaw a 4x growth in EBITDA before the sale to US Private Equity in 2013. He is currently advising Meet Recruitment and is Chairman of Samuel Knight, a PE backed Newcastle based recruiter.